What is a heartbeat trade?

So-called "heartbeat trades" represent transactions in which an investor first puts money into an ETF, then makes a quick withdrawal that is paid out in shares of the stocks held by the ETF, rather than in cash. Normally, a fund that sells a stock that has appreciated in value will trigger a capital gains tax liability for its shareholders.

How many 'heartbeat trades' were made in 2018?

In 2018, there were more than 548 such "heartbeat trades," worth a record $98 billion, per Bloomberg, and they shielded all ETF investors from significant capital gains taxes. In 2018, investors in the 183 largest U.S. equity ETFs avoided taxes on about $203 billion of realized capital gains through this mechanism, per Bloomberg.

Are 'heartbeat trades' tax deductible?

However, if it hands appreciated shares of stock to an investor in lieu of cash to settle a redemption, no tax is due. In 2018, there were more than 548 such "heartbeat trades," worth a record $98 billion, per Bloomberg, and they shielded all ETF investors from significant capital gains taxes.